I am already maxing out my 401(k), Roth IRA, and HSA on autopilot. I feel like beyond that, there are a lot of good options, each with their own risk and reward and it’s really difficult to choose between them.
For example, with my RSUs I could:
- Pay cash for the taxes and keep all of the shares. (High risk, high reward as this is $30,000 to $80,000 per year of shares in my employer. It also requires me to save up the cash to pay the taxes of up to $10,000 on a vest.)
- Sell shares for taxes, keeping about 2/3 of them. (High risk, high reward as this is $20,000 to $55,000 per year of shares in my employer.)
- Sell all shares for cash and diversify.
I’ve chosen option 3. It doesn’t seem to be working out that badly so far as I still see the efforts of my employer’s stock doing well with future RSU vests.
With my extra cash flow after maxing out tax-advantaged accounts, I could:
- Pay down the mortgage.
- Set the money aside in cash.
- Invest in index funds in a taxable account.
For the last year, I’ve been doing option 1 exclusively with an occasional dip into option 2. I’m starting to realize that life could change a lot in the next 4 years before my mortgage payoff goal and maybe it would be nice to have some more easily accessible funds. As with my psychological want to have a nice round number in my online savings account ($20,000), I have a feeling that once my mortgage balance reaches some number, I will feel less of a need to pay down the mortgage so aggressively and that’s when I’ll switch to investing in index funds instead or doing a mix. I’m already starting to feel less antsy about the mortgage balance, so I have a feeling that I will hit this number in the next six months or so.
Some numbers at which I think I’ll feel better about the mortgage balance:
a) $228,800: 20% of original loan balance paid down ($14,200 to go – will probably hit June 1st)
b) $214,800: 40% in equity (could hit by end of July)
c) $200,000: a round number (could hit November 1st)
d) $XXX,XXX: my expected gross income for this year including RSUs (could hit by end of November)
e) $179,000: 50% in equity (could hit by end of year, if I make the January 1st payment in December)
f) $150,000: a round number
g) $XXX,XXX: my base salary and what I would probably get somewhere else
h) $100,000: a round number
i) $50,000: a round number
j) $20,000: the balance of my savings account
k) $0: no more mortgage!
My guess is that somewhere between a) and e), I will feel better enough about the mortgage balance that I will start either splitting funds between investments and mortgage or just to investments. My investments have been going up so much lately that that seems like a bit of a scary idea though.
Why do I want to do this? Another 3-4 years is a long time to keep paying down the mortgage aggressively and not build up much of any savings/investments outside of a paid off condo and well-stocked retirement accounts. If I want to go work at a startup and lose my job stability or quit my job and travel the world, I’d like to have some more liquid funds aka a bit of a diversified nest egg rather than the gazelle intensity that I have right now on the mortgage. I can also always cash out the investments and pay off the mortgage, assuming that they haven’t lost value.
Ways I could diversify:
- Invest with my monthly savings and pay down the mortgage with the RSUs since those are bonuses. (7 year amortization)
- Invest 50% and pay down the mortgage with 50% of my monthly savings and RSU vests. (9 year amortization ignoring RSU vests)
- Pay down the mortgage with a specific amount each month to make the amortization over say 10 years (~$2,500 from today) or 15 years (~$1,700 from today) and invest the rest.
- Pay down the mortgage with the original payment each month (~$1,200) and invest the rest. (~20 year amortization)
I’m leaning towards diversifying by paying down the mortgage with a specific payment each month and investing the rest once I reach either $200,000 or my expected gross income including RSUs for the year.
Readers, do you find that you get attached to magic/round numbers emotionally when evaluating options? How do you deal with that?